North American Energy Summit

The North American Energy Summit assembled public and private stakeholders to discuss a strategy for harnessing the continent’s energy resources to spur economic growth, enhance national security and regional competitiveness, and promote responsible development of these resources.

Unlocking the Economic Potential of North America’s Energy Resources by Goldman Sachs' Global Markets Institute outlines the opportunity for North America to boost economic activity, create jobs and reduce emissions considerably over the next decade.

Overview

North America is at a historic inflection point when it comes to its energy future. In recent years, energy production has surged across the continent, with the United States poised to become the world’s top oil producer, Canada scaling output to unprecedented levels, and Mexico forging landmark energy reform. The North American Energy Summit will assemble public and private stakeholders to discuss a strategy for harnessing the continent’s energy resources to spur economic growth, enhance national security and regional competitiveness, and promote responsible development of these resources.

OUTLOOK

As recently as five years ago, energy projections outlined a bleak future for North America. Expected increases in oil and gas imports, coupled with growing susceptibility to supply side shocks, foretold higher energy prices and increased pressure on economic growth. Today, North America’s energy outlook has dramatically improved. In addition to substantial increases in oil supply, natural gas and renewable energy production are also on the rise. As a result, the U.S. trade deficit has shrunk, while jobs in the energy sector are growing faster than the private sector as a whole.

OPPORTUNITY

The opportunities presented by North American energy resources are tremendous. Maximizing energy efficiency and integration has the potential to support job growth in key sectors, including transportation, power generation, manufacturing, and petrochemicals, while also reducing harmful emissions. Importantly, growth, security, and sustainability across the continent need not require insurmountable trade-offs.

INTEGRATION

The North American Energy Summit brought together the most thoughtful and influential public and private sector decision-makers–including leading CEOs, public sector officials, and experts from the United States, Canada, and Mexico, as well as key global investors and companies involved in the North American energy sector–to discuss how the region can achieve its energy potential. Watch Video

Country Specific Facts

These statistics examine the energy outlook and opportunity for Canada, Mexico and the United States.

Goldman Sachs Research

EXECUTIVE SUMMARYThe “demand response” phase of the shale revolution is stalling Last year North America spent nearly $200 billion on producing oil and gas, attracting over 50% of global upstream investment, outspending Russia and Saudi Arabia combined by an astonishing factor of 10-to-1. However, as supply-side investment surges ahead, demandside investment lags. Although North America has access to some of the lowest energy prices in the world, reinvestment rates in energy-intensive manufacturing that create high-value jobs lag those of Asia and the Middle East, by a more impressive 15-to-1. Further, the region has also fallen short in building the infrastructure to ensure the benefits of abundant energy supplies can be fully reaped. As temperatures plunged this past winter, gas could not be delivered where it was needed, creating regional price spikes. If these trends continue, North America will not only fail to harness the benefits from the shale revolution it created, but it will also forego over the next decade more than 2 million new jobs, 1.0 % of additional GDP growth and at least a 5% incremental reduction in greenhouse-gas emissions.

The window of opportunity for North America to benefit fully from its potential is limited. While North America can easily point to the economic advantages generated by shale, these advantages were based on legacy infrastructure rather than resource availability. Many other countries have similar resources as North America, particularly China. They only lack the infrastructure needed to unlock these resources. This means that it is only a question of time before other nations catch up with North America. Time is of the essence to act now, so what can be done to turn this resource wealth into real economic value?

Opportunity to pursue shared environmental and economic goals All of these problems share a common solution: stable and well-defined energy, environmental and transportation policies. While the “shale revolution” has taken place without an energy policy, we note that this involves short-term, quick-turnaround investments. In contrast, the demand-side investments that we need today are larger in scale, requiring decades to recoup the investment, and as such require a high level of confidence in future policies. Creating policy aimed at establishing such long-term confidence has real economic benefits and is an opportunity for business and government to work together to support the shared goal of a clean environment, a strong economy and sustainable job creation that has historically defined North America. We therefore see three key policy themes on which business and government can work together to create the conditions necessary for this much-needed investment: (1) reducing uncertainty through effective regulations, (2) optimizing costs and emissions across the entire value chain and (3) focusing on scalability and diversification of technologies.

1. Reduce uncertainty through durable and effective regulations The long-term nature of energy-intensive demand-side investments underscores the need for stable, not temporary, rules that create an economic vision of the future. To make multibillion dollar demand-side investments that require decades to generate an adequate rate of return, investors need to be confident in the future for fracking in that it can be done safely within well-defined and well-understood rules. In order to be predictable, regulation needs to be clear, uniform and effective. In our view, effective energy policy should be conducted in terms of both protecting the environment and in attracting longer-term responsible investment. These objectives are not mutually exclusive.

2. Optimize costs and emissions along the value chain To optimize emissions and costs, emission limits should be approached from the perspective of “well-to-wheel” rather than simply focusing on certain downstream segments such as automobiles or power generation. For instance, unless the energy source meaningfully shifts to renewable energy, the headline emissions benefits of a “zero-emissions” auto industry are overstated when accounting for the entire well-to-wheel supply chain. We estimate that if methane emissions at the well-head and pipeline were contained, gas-based fuels could deliver transportation with lower total emissions than gasoline at lower investment costs than the “zero-emissions” automotive technologies, and these trade-offs therefore need to be carefully addressed. Specifically, we believe that natural gas-based ethanol and electric vehicles are the two most promising alternatives to gasoline based upon cost, potential emission reductions and consumer payback. However, natural gas-based ethanol and electric vehicles have very divergent investment requirements: ethanol is very front-end-loaded at the upstream drilling and refining stage with little burden on the consumer, whereas electric vehicles require comparatively less infrastructure investment but a much larger investment borne by the consumer, and a high level of uncertainty remains around battery costs.

3. Focus on scalability and diversification of technologies Renewable energy is cleaner and more sustainable, but currently there are real challenges, such as intermittency (the sun is not always shining, nor the wind blowing), that currently limit their ability to reliably supply North America’s power needs. Through improving cost structures and technologies, as well as various incentives and mandates, renewables are set to continue to take market share. However, until centralized electricity storage technology options emerge and become scalable, technologically driven limits on scalability exist for renewables – making other technology options necessary as base-load resources. Cost and environmental concerns may drive a lower reliance on nuclear or coal generation, impacting their scalability, making increasing use of natural gas a necessity as more of a base-load resource, especially given significant scalability advantages. While policy should help facilitate R&D in new technologies, it should also ensure that it does not crowd out investment of known scalable technologies, which have the potential to lower emissions. But predicting technological advances remains challenging, which is why we recommend a diversified portfolio approach to power generation with an emphasis on natural gas until a new clean, low-cost, scalable technology emerges.

Five questions that need answers to kick-start the demand phase of the revolution We believe that to create an environment more conducive to investment to achieve these goals, five questions need to be addressed before kick-starting the demand response phase of the shale revolution: (1) What are the best fracking practices and water rules? (2) How can pipeline rules and regulations be improved? (3) What are optimal strategies for capturing fugitive methane? (4) How can natural gas-based ethanol (E85) fueled and electric vehicles be encouraged in the transportation sector? and (5) What reforms in the power generation sector should be instituted?

We see three key areas where policy can create forward confidence. Addressing these areas... creates an opportunity for both business leaders as well as government leaders to work together at a shared goal of creating a strong economy, a clean environment and long term sustainable job creation.

- Jeff Currie, Goldman Sachs

INFOGRAPHICS

These infographics explore the long-term opportunities associated with an integrated North American energy strategy.

- The Berkeley Energy and Climate Institute (BECI)Read ReportBECI convenes and focuses the energy- and climate-related research activities at the University of California, Berkeley and the Lawrence Berkeley National Laboratory (LBNL).

- Center for American Progress Read ReportThe Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action.

- Environmental Defense FundRead ReportEnvironmental Defense Fund’s mission is to preserve the natural systems on which all life depends. Guided by science and economics, EDF finds practical and lasting solutions to the most serious environmental problems.

- Natural Resources Defense CouncilRead ReportNRDC is a non-profit membership organization, with more than 700,000 members, five offices in the US and one in Beijing. NRDC’s annual budget exceeds $90 million.

- Meghan O’SullivanRead ReportMeghan L. O’Sullivan is the Jeane Kirkpatrick Professor of the Practice of International Affairs and the Director of the Geopolitics of Energy Project at Harvard University’s Kennedy School of Government. She is a foreign affairs columnist, a political risk consultant for energy companies, and a former Deputy National Security Advisor for Iraq and Afghanistan for President George W. Bush during the second term of his administration.

- Resources for the FutureRead ReportResources for the Future is a nonprofit and nonpartisan organization that conducts independent economic research on environment, energy, and natural resource issues.

In the papers presented in the Additional Analysis section above, the views and opinions expressed are those of the authors; the papers are presented for informational purposes only and do not constitute any investment advice or recommendation by Goldman Sachs.